How first-time buyers enter the internal market

Gonçalo Fernandes wanted to buy a house with a garage for his motorcycle, but it took rising house prices to push him into the market.

“My wife and I saw house prices rise and we were worried about being left out of the market,” Fernandes said. “We were very motivated when we saw mortgage rates go up last fall. We had been searching online at Redfin and Zillow for at least six months, but after meeting with a lender and real estate agent, we made an offer within a month. . “

Fernandes, 32, works in the auto industry in Herndon, Va., And his wife, Nicole Fernandes, 33, works in medical billing in nearby Ashburn. The couple, whose budget was around $ 400,000, purchased a townhouse in Leesburg, Va., With a two-car garage.

“Our total mortgage payment is only about $ 200 more than what we were paying in rent,” said Gonçalo Fernandes. “We had saved enough for a 12% down payment, but we were a bit paranoid as first-time buyers and wanted to keep as much cash as possible in reserve.”

The couple paid a deposit of 5% with a classic loan intended for first-time buyers. They pay private mortgage insurance (PMI) on the loan, required on most purchases made with a down payment of less than 20%.

“We bought a house to renovate and did some work on it already and got a good price on the house because it had been on the market for a while,” says Fernandes. “We will have it evaluated in a few months because we may already be able to get rid of our PMI.”

The Fernandes used YouTube videos to learn how to do home improvement projects and painted their kitchen cabinets.

“The house was in good repair, but it was covered with a serious case of ugliness,” says Fernandes. “We negotiated with the seller to pay us the value of the necessary repairs, such as replacing the water heater, patching the roof and re-filling some windows. We took this money as a credit for closing costs so that we could keep as much cash as possible to use for reserves and repairs. “

The Fernandes were able to buy their house by saving, negotiating, and accepting a house that needed a little work. Other first-time buyers have achieved their goal with the help of family members and home buying assistance programs.

First-time home buyers accounted for 33% of all homebuyers in 2018, according to the National Association of Realtors, and their median age was 32.

About 25% of buyers received a loan or gift from a family member and 10% received financial assistance from a government agency or non-profit organization, according to Freddie Mac.

With $ 67,000 in student debt and $ 50,000 in savings, Rija Tofeeq, a 27-year-old nurse, was torn between wanting to buy a house and paying off her loans. A colleague told him about the Maryland SmartBuy program, which allows buyers to pay off their student loans with a second zero-interest loan when they use the Maryland mortgage program to buy a home.

“I contacted a lender and learned that if we could qualify for a loan of $ 275,000, we could also borrow 15% of the value of the house, up to a maximum of $ 40,000, for pay off my student loans, ”Tofeeq said. “My husband and I lived with my parents and our 7 year old daughter and 3 year old son to save money and get help with our children.

Tofeeq’s 33-year-old husband Sayed Shah was finishing college when Tofeeq heard about the program and was about to find a new job.

“We made the loan entirely on my behalf and he delayed taking a new job until the loan closed because we had to meet the income requirements for the program,” says Tofeeq. “The program requires you to pay off all of your student loans, so we paid $ 27,000 on my student loans and an additional $ 20,000 as a 5% down payment.”

The couple have now moved into a single-family home in Pasadena, Maryland. The remaining $ 40,000 in Tofeeq student loans has been paid by the lender, and Tofeeq has a second loan on his house to cover the repayment. As long as she stays in the house and makes repayments on the 0% interest loan for five years, the remainder of the loan will be forfeited.

Two home buyers programs in the District of Columbia have supported the dream of Yaqueline “Jackie” Uribe Perez Clauss, a teacher at Wilson High School in the Northwest and single mother of a 22-year-old, a 17-year-old and another 6 years old. old woman, to buy her first house. Clauss participated in DC’s Inclusive Zoning Program, which offers qualified borrowers the opportunity to enter a lottery to purchase an affordable home. The program has income limits as well as a requirement to complete a training course for home buyers.

“I lived in a basement with three children when I arrived in Washington in 2016 and my goal was to buy a house,” says Clauss. “The process of zoning for inclusion was very complicated, but I wasn’t going to give up on my dream even after I didn’t get the home I wanted in the beginning.”

Clauss was also eligible for $ 30,000 down payment and closing cost assistance through the district’s Home Buyers Assistance Program (HPAP), which supplemented the $ 2,000 she had saved. by herself. She eventually won the lottery and moved into a house in the Fort Lincoln Park neighborhood in the northeast.

Maria Lynard, a 29-year-old first-time home buyer in Fredericksburg, Va., Never stopped living at home with her parents so she could save for a down payment.

“I paid for my car, so my only expenses were my cell phone, gasoline, car insurance and food,” says Lynard, who works for a home improvement company. “My real estate agent recommended that I go to George Mason Mortgage for a loan and they told me about homeowner assistance programs for first-time buyers.”

Lynard found that her income and first-time buyer status qualified her for a $ 4,000 grant from the Virginia Housing Development Authority to pay for her closing costs.

“All I had to do was take an online homebuyer’s course and the grant didn’t need to be repaid,” says Lynard. “I put an 8% down payment on my house, which is ready to move in, so I don’t have to worry about plans. “

Lynard paid around $ 200,000 for his first house.

While many early buyers get help from parents with down payment, Walker Timme, a 35-year-old teacher at Basis Charter School in DC, received an inheritance when his mother passed away in 2018, which left him allowed to pay cash for his first home.

“I feel like my mom is still here somehow because the money she left me is used to pay for my condo and she would love that,” says Timme. “My monthly condo expenses are just condo fees, taxes and insurance, which is less than what I was paying in rent for the studio I have lived in for the past 11 years.”

Timme had “grazed recreationally,” wanting to buy for about a year, but legacy galvanized her to seriously find a condo that met her priorities: a two-bedroom, two-bathroom home in Columbia Heights that accepts dogs and is close to a metro station. Her other must-sees included a reception for security and a second bedroom for her dad to visit in comfort.

Each of these buyers worked with a real estate agent, but Timme also had the support of a lender to understand the financial aspects of the purchase. Some lenders are particularly passionate about finding help or special loans for first-time buyers.

“There are so many options for first-time buyers through the Maryland mortgage program and there are relatively high income limits in many counties,” says Ryan Paquin, branch manager and mortgage consultant at First Home. Mortgage in Crofton, Maryland. He said that in Prince George County, for example, there are programs for households with an income of $ 169,820 as long as there are three or more people living there.

The SmartBuy program, which helps home buyers pay off student loan debt, is part of the Maryland Mortgage Program.

Paquin specifies that first-time buyers, for the purposes of purchase assistance programs, are people who have not owned their home during the past three years.

“There are grants that don’t need to be repaid and low or no interest loans that sometimes don’t need to be repaid until you sell or refinance,” says Paquin. “There are loan programs with low down payment options and debt-to-income ratios of up to 50%. “

A debt-to-income ratio compares the minimum monthly payments on all debt, including your mortgage payment, with your gross monthly income. Credit score requirements vary for these programs.

“Before looking for a home, buyers should ask a lender to withdraw their credit, because the credit scores people get on free credit rating sites or their credit card companies are different than the ones people get. ‘a lender sees,’ says Ryan Vitielliss, assistant branch manager at First. Home Mortgage.

Dana Taurus, a real estate agent at Sagan Harborside Sotheby’s International Realty in Marblehead, Mass. bought her first home at age 22 with a down payment she had saved working through her high school and college years.

“What is most important for first-time buyers is to build the right team, with a lender, a real estate agent, a lawyer and a home inspector to represent their interests,” explains Bull. “It’s also a good idea to buy something with a worst-case scenario in mind and then figure out how you’re going to handle it.”

Bull recommends finding an attractive location for tenants so that the property can become an investment for the future.

“First-time buyers would be smart to buy a two-bedroom condo and rent a room to a roommate so they can more easily afford it,” Bull said. “A two-bedroom is easier to rent and it will also have a larger pool of buyers in the future. “

Finding the right property and managing the financial side of a purchase can seem overwhelming to first-time buyers, says Alyssa Cannon, real estate agent with McEnearney Associates in Arlington, Virginia.

“I suggest that people break the process down into bite-sized steps,” Cannon says. “Meet with an agent and a lender to understand the steps and know your financial situation. Then watch the open houses to get a better idea of ​​what you like. Eventually, you will find a place where you can see yourself living for a long time.”

Cannon says it’s good to look online to get a feel for what’s available, but she believes seeing properties in person can educate buyers so they understand home values ​​and can explore different neighborhoods.

“The important thing is to first intervene with a lender, because buying your first place is not a unique proposition,” explains Paquin. “A lender can help you put together a plan that’s right for you so you can take the plunge and stop wasting money on rent.”